DOING BUSINESS IN VIET NAM - A REFERENCE GUIDE FOR ENTERING THE VIET NAM MARKET - PWC

Page created by Clyde Sparks
 
CONTINUE READING
DOING BUSINESS IN VIET NAM - A REFERENCE GUIDE FOR ENTERING THE VIET NAM MARKET - PWC
A reference guide for entering the Viet Nam market

Doing Business
in Viet Nam
DOING BUSINESS IN VIET NAM - A REFERENCE GUIDE FOR ENTERING THE VIET NAM MARKET - PWC
This Guide includes information            makes no guarantee, representation
                    obtained or derived from a variety of      or warranty (expressed or implied)
                    publicly available sources. PwC has        as to its accuracy or completeness,
                    not sought to establish the reliability    and under no circumstances will
                    of these sources or verified such          PwC be liable for any loss caused by
                    information.                               reliance on any opinion or statement
                                                               made in this document. Except as
                    The information contained in this          specifically indicated, the expressions
                    document is of a general nature only.      or opinions are those of PwC only and
                    It is not meant to be comprehensive        are subject to change without notice.
                    and does not constitute financial,         This document shall not be copied,
                    legal, tax or other professional advice.   reproduced, transmitted or further
                                                               distributed by any recipient.
                    You should not act upon the
                    information contained in this              The materials contained in this
                    publication without obtaining              document were assembled in August
                    specific professional advice.              2018 and were based on the laws
                    Whilst every care has been taken           enforceable and information available
                    in preparing this document, PwC            at the time.

2 | Doing Business in Viet Nam
DOING BUSINESS IN VIET NAM - A REFERENCE GUIDE FOR ENTERING THE VIET NAM MARKET - PWC
PwC Vietnam | 3
DOING BUSINESS IN VIET NAM - A REFERENCE GUIDE FOR ENTERING THE VIET NAM MARKET - PWC
4 | Doing Business in Viet Nam
DOING BUSINESS IN VIET NAM - A REFERENCE GUIDE FOR ENTERING THE VIET NAM MARKET - PWC
Content
Foreword                                    10

Introduction                                12

1. An Overview of Viet Nam                  16

2. Types of Business Entities               24

3. Trade                                    29

4. Taxation                                 34

5. Accounting and Auditing                  64

6. Human Resources and Employment Law       68

7. Banking and Capital Market               72

8. Real Estate Market                       76

PwC Vietnam                                 78

Viet Nam Chamber of Commerce and Industry   84

Contact us                                  86

                                                 PwC Vietnam | 5
DOING BUSINESS IN VIET NAM - A REFERENCE GUIDE FOR ENTERING THE VIET NAM MARKET - PWC
Viet Nam - We mean business: Connect and Inno-
          vate

                  Viet Nam:
                  We mean business

6 | Doing Business in Viet Nam
DOING BUSINESS IN VIET NAM - A REFERENCE GUIDE FOR ENTERING THE VIET NAM MARKET - PWC
PwC Vietnam | 7
DOING BUSINESS IN VIET NAM - A REFERENCE GUIDE FOR ENTERING THE VIET NAM MARKET - PWC
8 | Doing Business in Viet Nam
DOING BUSINESS IN VIET NAM - A REFERENCE GUIDE FOR ENTERING THE VIET NAM MARKET - PWC
“   In the context of global economic uncertainties, Viet Nam has always
                                 maintained its position among the fastest growing countries in the world.
                                 In 2017, Viet Nam recorded a growth of 6.81%, for the first six months of
                                 2018 alone, the economy grew at 7.08% which is the country’s highest
                                 growth rate in 10 years since the world economic crisis in 2008. Viet Nam
                                 ranked 55th out of 137 countries in the WEF’s Global Competitiveness
                                 Index (GCI), 68th among 190 economies in World Bank’s Ease of Doing
                                 Business, and 45th out of 127 countries in the Global Innovation Index
                                 (GII) of The World Intellectual Property Organisation. The political,
                                 social environment and macroeconomic factors in Viet Nam are always
                                 considered stable. The country has an abundant work force - the youngest
                                 labour force in ASEAN, Viet Nam’s labourers are well-trained, hard-
                                 working, skilled and able to learn and quickly absorb new technology
                                 advances.
Nguyen Xuan Phuc
Prime Minister of Viet Nam
                                 Viet Nam currently has trade relations with more than 200 countries
                                 and territories. Viet Nam is a member of WTO, participating in 12 FTAs,
                                 including 6 FTAs between ASEAN and major partners such as China, India,
                                 Japan and Korea... The CPTPP is being ratified and the next steps will be
                                 the completion of the FTA with the EU and the RCEP. These agreements
                                 are giving Viet Nam access to more than 50 economies worldwide, and
                                 providing opportunities for the country to connect and engage further in
                                 the value chains and global production networks.”

                                 Extracts from the Keynote Address by H.E. Prime Minister Nguyen Xuan Phuc at the
                                 Viet Nam Business Summit 2018, September 13th, 2018.

                                                                                                          PwC Vietnam | 9
DOING BUSINESS IN VIET NAM - A REFERENCE GUIDE FOR ENTERING THE VIET NAM MARKET - PWC
Foreword
                                  It gives us great pleasure
                                  to introduce the “Doing
                                  Business in Viet Nam” guide
                                  for 2018 co-published by
                                  the Viet Nam Chamber of
                                  Commerce and Industry
                                  (VCCI) and PwC Vietnam.

10 | Doing Business in Viet Nam
2018 brings the 7th edition of the       It is never too late to invest in a
                        “Doing Business in Viet Nam” guide,      country with high potential for
                        which provides insights for investors    return on investment like Viet Nam.
                        planning to enter or expand their        Its diversified economy and varied
                        presence in Viet Nam.                    geographical landscape are key
                                                                 drivers shaping the development
                        The objectives of Doing Business are     of promising sectors such as
Vu Tien Loc             as clear as they are ambitious: to       Agriculture, Tourism and Hospitality
Chairman & President    address the initial establishment of     and Renewable Energy.
Viet Nam Chamber of     an entity, to implement appropriate
Commerce and Industry   legal and tax structures, to ensure      These are just a few examples
                        ongoing compliance and to resolve        of business and investment
                        operations issues.                       opportunities that Viet Nam has to
                                                                 offer. More information can be found
                        2017 saw a number of records for         in this publication and other PwC
                        Viet Nam’s economy, such as FDI          reports, e.g. Spotlight on Viet Nam.
                        disbursement reaching $17.5 billion,     We hope you will find insightful
                        a 10-year high. Similar to FDI,          information in this guide for your
                        import-export turnover reached a         future endeavours. Our teams at
                        record high of over $400 billion with    PwC and VCCI in Viet Nam would
                        a trade surplus of nearly $3 billion.    be happy to guide you through your
Dinh Thi Quynh Van                                               journey in this economy.
General Director        Coupled with an “enabling
PwC Vietnam             Government” and her commitment
                        to support and create the most
                        favourable conditions for foreign
                        businesses, the Comprehensive and
                        Progressive Agreement for Trans-
                        Pacific Partnership (CPTPP) and
                        EU-Viet Nam Free Trade Agreement
                        (EVFTA) will serve as strong levers to
                        boost the country’s growth.

                                                                                        PwC Vietnam | 11
Introduction
                                  Welcome to our guide to
                                  doing business in Viet Nam.
                                  In this publication,we provide
                                  you with information on
                                  the business environment as
                                  well as accounting, tax and
                                  regulatory laws governing
                                  business in Viet Nam.

12 | Doing Business in Viet Nam
Viet Nam’s economy has                  For years, capital has been poured
experienced strong growth, driven       into Viet Nam focusing on assembling
by international trade and foreign      facilities and manufacturing factories
investment since the 2000s.             to take advantage of cheap labour.
Favourable government policies and      With positive projections and outlook
laws, in combination with Viet Nam’s    for the country, Viet Nam will
young, educated workforce and           certainly see a wave of new entrants
other advantages have allowed the       from foreign companies. In the next
country to develop into an attractive   decade, it is expected that Viet Nam’s
place to invest in South East Asia.     tech start-ups will attract big-name
                                        investors from the region, mostly
In 1987, the National Assembly          from within ASEAN and China.
passed the Law on Foreign
Investment and today, the country       There will be challenges and
is reaping the benefits 30 years        complexities ahead and foreign
later. Foreign investors committed      companies seeking to enter
to invest $318 billion by the end       Viet Nam will need to embrace a
of 2017, of which $172 billion was      mind-set that no economy is the
disbursed.                              same. Thus, understanding Viet Nam
                                        and all the elements that make it a
Vietnamese people are widely            unique market, will help business to
regarded as technologically             develop and adapt a bespoke strategy
proficient, embracing the mobile        for the local context.
internet economy as a standard in
their daily lives. As per Statista’s    More importantly, with adequate
data, the number of smartphone          information and advice provided by
users in 2017 was estimated at 29       professionals, foreign investors will
million, meaning that around 29%        not only effectively enter the market,
of the population currently use a       but also enjoy sustained success in
smartphone. This figure is predicted    this country.
to rise to 40% by 2021. In 2017,
Viet Nam had 54 million internet        This guide outlines fundamentals of
users and this is forecasted to grow    investing in Viet Nam and highlights
to 59 million by 2022. These have       some common issues that investors
been contributing to a dynamic          should be aware of when operating
digital economy.                        in Viet Nam. PwC and VCCI remain
                                        available to share our considerable
                                        local knowledge.

                                                                                 PwC Vietnam | 13
Viet Nam in 2018 and looking ahead
PwC’s economists predict that Viet Nam will become the 20th largest economy by 2050, fueled by
sustainable economic reforms, the strengthening of macroeconomic fundamentals, public institutions
and crucially, mass education.

              Fastest growing                                                                 #68th
              economy in ASEAN                                                                in Doing Business index
              7.1% GDP  growth
                   in 2018
                                                                                                 14 places from 2016

              ADB’s Asian Development Outlook, 2018    Administrative                         World Bank’s Doing Business Report, 2018

                                                       reform
    A wave of bank                                     670 Investment and
                                                           business conditions
    listing                                            under the management of the
                                                                                                 A key FDI destination
                                                       Ministry of Industry and Trade
    9 commercial banks
                                                       were loosened                             Viet Nam is one of the most
    consider listing in 2018,
                                                                                                 frequently recommended
    expected to spur interest in
                                                       Ministry of Industry and Trade, 2017      investment destinations.
    Viet Nam’s stock market
                                                                                                 AmCham’s ASEAN Business Outlook Survey
                                                                                                 2018

   >5,000                                       US$3 billion                                     2017 total FDI inflows reached
   foreign deals                                trade surplus                                    US$36 billion, a record over the past
                                                                                                 10 years and is set to look brighter
   45.1% increase in foreign                    while exports topped US$214                      in 2018
   capital inflow into Vietnamese               billion, a 21% increase from                     Foreign Investment Agency, 2018
   businesses compared to 2016                  2016
   Foreign Investment Agency, 2017              General Department of Viet Nam
                                                Customs, 2017

Next steps for
investing in Beware of the                                                           See how Viet Nam
Viet Nam      changing business                                                      fits into your
                       environment                                                   strategy

                          1                             2                               3                             4
                                                      Understand the                                               Build strategy
                                                      opportunities in                                             execution plans
                                                      Viet Nam

14 | Doing Business in Viet Nam
Three major growth engines drive opportunities for investors in Viet Nam

Young and competitive workforce                         Competitive economy,                   Stable government committed to
A growing educated workforce, with                      beyond low cost                        growth
an ideal population structure, where                    Viet Nam has a cost-competitive,
55 million people are aged 15 and                                                              Viet Nam’s Prime Minister Nguyen
                                                        educated and increasingly skilled      Xuan Phuc is committed to building
above, accounting for 59% of the                        labour force. This offers greater
total population. Viet Nam has a                                                               an enabling, working, and serving
                                                        value and serves as an ideal           government. Several measures and
labour market efficiency of around                      production base for companies
4% compared to 4.4% for the region.                                                            actions taken by his government
                                                        thinking of shifting or diversifying   and local administrations have
Manpower’s Total Workforce Index, 2017
                                                        out of larger economies such as        proven to be effective.
                                                        China.
                                                                                               Vietnamese consumers are among
                                                                                               the most optimistic, ranked 7th in
                                                                                               the world*, riding on the back of
* According to Conference Board Global Consumer Confidence Survey
For more info, read our special report at pwc.com/vn/spotlight-on-Viet Nam                     a 7% growth in GDP per capita in
                                                                                               2017.

      Invest in Viet Nam's                                                   Apply
      competencies and                                                       international                               Share the
      people                                                                 standards                                   rewards

         5                                   6                                 7                 8                          9
                                          Invest in                                            Expand the
                                          relationships                                        business to support
                                                                                               regional growth

                                                                                                                      PwC Vietnam | 15
1
An Overview
of Viet Nam
This guide, Doing Business in
Viet Nam, provides a high level
overview of the practical aspects
of doing business in Viet Nam,
including the common types of
business entities used by local
and foreign investors, and
the taxation and regulatory
environment in Viet Nam.

The guide also covers some
practical issues faced by
investors when entering
Viet Nam.

16 | Doing Business in Viet Nam
“   Viet Nam’s enabling
    government,
    continuous
                            Geography

                            Viet Nam is conveniently located in the centre of South East Asia and is
                            bordered by China to the north, and Laos and Cambodia to the west.

    institutional reforms   The total area of Viet Nam is over 330,900 kilometres and its geography
                            includes mountains and plains. Viet Nam’s population is spread throughout
    and competitive         the country.

    workforce provide       Total population by end of 2017 was estimated at over 94 million people.
    excellent conditions    Viet Nam represents a huge pool of both potential customers and employees
                            for many investors.
    for investors to
                            Hanoi in the north is the capital of Viet Nam and Ho Chi Minh City in the
    conduct long-term       south is the largest commercial city. Da Nang, in central Viet Nam, is the third
    business.”              largest city and an important seaport.

    Dinh Thi Quynh Van                                                                     Language
                                                                   Capital city            Vietnamese
    General Director                                                       Hanoi
    PwC Vietnam                                                                            International
                                                                                           dialling code
                                                                                           +84

                                                                                           Currency
                                                                                           dong

                                                   3rd largest city,
                                                   important seaport:
                                                           Da Nang

                                                                                           Business &
                               63     municipalities & provinces                           banking hours
                                                                                           8am - 5 pm
                                      Area & population:                                   Monday to Friday
                                      over 330,900 square kilometres,
                                      over 94 million (median age: 30.5)
                                                                                           Stock exchange
                                                                                           Ho Chi Minh City
                               47.4 million                                                Hanoi

                               People of working age
                               in employment

                                     $2,385
                               Average annual income
                                                                           Largest city:
                                                                            Ho Chi Minh
                                                                            City

                                                                                                 PwC Vietnam | 17
Economic Environment

GDP growth was 6.8% in 2017, an increase from 6.2% in 2016 and is targeted
to hit 6.7% in 2018 by the Government.

Over the last 20 years from 1997 to 2017, GDP growth has averaged
approximately 6.4%. Despite facing numerous challenges, 2017 still marked
a successful year for trade with export turnover reaching $214 billion, up
21% compared to 2016 - the highest ever year-on-year increase. Textiles
and garments, electronic components and mobile phones made significant
contributions to Viet Nam’s export economy. Surprisingly, vegetable and fruit
exports were also positive, achieving a 43% year-on-year increase. Foreign
invested business achieved a trade surplus of $29 billion, contributing
substantially to the total national trade surplus.

Import activities were well managed which resulted in a trade surplus of
nearly $3 billion. Viet Nam’s imports largely comprised raw materials and
mechanical spare parts for manufacturing and production purposes as well as
for projects in power and energy.

GDP growth rate
                                                        7.1%
                                                      7.1%

                                              6.8%
                                            6.8%
                       6.7%
                     6.7%

                                    6.2%
                                  6.2%
        6%
       6%

       2014
      2014            2015
                     2015          2016
                                  2016       2017
                                            2017         2018
                                                       2018
                                                       (forecast)
                                                     (forecast)

Inflation

         4%
        4%                                              3.7%
                                              3.5%    3.7%
                                            3.5%

                                     2.7%
                                   2.7%

                        0.6%
                      0.6%

        2014
       2014            2015
                      2015         2016
                                  2016       2017
                                            2017        2018
                                                      2018
                                                      (forecast)

18 | Doing Business in Viet Nam
Key Sectors and Trading Partners

In terms of economic structure, services still accounted for the largest part of
GDP, approximately 41.3%, followed by manufacturing and construction at
33.3%. The agriculture, forestry and fishing sector made up 15.4% of GDP in
2017.

The EU and ASEAN have continually been long-term trading partners of
Viet Nam with total import-export turnover in 2017 hitting $50.4 billion
and $49.5 billion respectively. Four other import markets for Viet Nam, with
turnover of over $14 billion were: USA ($41.6 billion); China ($35.5 billion);
Japan ($16.8 billion) and South Korea ($14.8 billion).

For more information on FTAs and trade statistics, please refer to the ‘Trade’
section of this guide.

GDP by sector

                      15%

                                              Services

   41%                                        Manufacturing & Constructing
                                              Agriculture, Forestry & Fishing
                        33%

Major export partners

                                        EU                            Korea
                US                      18%
                                                                       7%    8%
                19%                                          China                Japan
                                                              17%

                                                                     10%

                                                                  ASEAN

         Others
          21%

                                                                           PwC Vietnam | 19
Foreign Direct Investment

For the past 30 years, Viet Nam         As part of its administrative                Similar to previous years,
has opened the door to welcome          reform efforts, the Ministry of              Viet Nam continues to attract
investors. Viet Nam has become one      Planning and Investment (MPI)                foreign investments mostly from
of the most sought-after investment     with support from the World Bank             Asian countries, where Japan,
destinations thanks to its politico-    has developed a draft strategy on            Korea and Singapore are ranked as
economic stability, stable foreign      attracting FDI in 2018-2023 to suit          top investors. In 2017, among 115
exchange, inflation and interest        new circumstances. The new draft             foreign investors in Viet Nam, Japan
rates, and notably, its success in      strategy targets quality rather than         and Korea account for almost half
hosting APEC in 2017.                   quantity, with a focus on high-tech,         of the total registered FDI. Most of
                                        environmentally friendly, low-energy         Japan investments are poured into
In line with the commitment to          consuming and renewable energy               two BOT thermopower projects in
create favourable conditions for        projects, in addition to enhancing           Thanh Hoa and Khanh Hoa, with
investors, the Government has made      connectivity between FDI businesses          total value up to US$ 5.4 billion. In
tremendous efforts to accelerate        and domestic companies.                      2017, China surprisingly climbed to
the equitisation and divestment of                                                   the fourth position with investments
SOEs, which helps to create more        Viet Nam joined the World Trade              worth US$ 2.1 billion.
opportunities for foreign investors.    Organisation (‘WTO’) in 2007. Under
For instance, Saigon Beer Alcohol       its accession commitments, Viet Nam          Manufacturing and processing
and Beverage Corp (Sabeco)              opened up various business sectors           continue to be favourite sectors for
successfully raised $6 billion from     to foreign investment, in some cases         foreign investors, reaching US$15.9
sales of shares last year. Similarly,   under a phased approach. These               billion in 2017, accounting for 44.2%
Jardine C&C acquired 5.5% shares of     commitments are generally referred           of the total FDI. Power production
Viet Nam Dairy JSC (Vinamilk) for       to when assessing whether foreign            and distribution follow with the
$616 million in cash.                   investment in a particular sector is         total investment capital of US$8.37
                                        allowed.                                     billion, accounting for 23.3%. Real
                                                                                     estate secured the third place at
                                                                                     US$3.05 billion, or 8.5%.

FDI capital inflow                       Key FDI sectors 2017                         Key FDI sources 2017

                                        $15.9b $8.4b $3.1b         $2.4b    $1.2b
                                        (44.2%) (23.3%) (8.5%)     (6.8%)   (3.6%)
  2016                      44.4%                                                    25.4%   23.7%   14.8%     6%     4.6%

  2017            $36 billion
Highest since 2009

                                                                                                                         s
Disbursed FDI
                                                                                     Japan   Korea Singapore China    British
                  10.8%                                                                                               Virgin
                                              Manufacturing-processing                                                Islands
                                              Power production & distribution
                  $17.5
                  billion                     Real estate
                                              Retail
                                              Mining
         2016        2017

20 | Doing Business in Viet Nam
Investment incentives:

Investment incentives are granted
to investment projects based on
location, sector and other factors
such as the size of the project. High
technology, software, new energy,
waste recycling and education are
among business areas eligible for
investment incentives. The full list
could be retrieved from the Foreign
Investment Agency’s website. Those
incentives are provided in the
following forms:
• Lower tax rates for the whole
duration of the investment term or
part thereof; exemption from and
reduction of tax rates;
• Import duty exemption for fixed
assets; and
• Reduction/exemption of land
rental

Further details on tax incentives
could be found under the Corporate
Income Tax section of this guide.

                                        PwC Vietnam | 21
Legal and Regulatory Regime

1/ Political structure:
Viet Nam is a socialist country operating under the single-party leadership of the Communist Party.

A nationwide congress (‘National Congress’) of the Communist Party of Viet Nam is held every five years, with the
most recent being in early 2016, to determine the country’s orientation and strategies and adopt its key policies on
policies for socio-economic development. The National Congress elects the Central Committee, which in turn elects
the Politburo.

2/ Hierarchy of regulations:

   National
   Assembly                       Government        Ministries
                                                                            Various other authorities

                                                     Circulars                 A plethora of other legal
          Laws                     Decrees
                                                                               instruments/ guidelines

As the only party in the political arena, the role and influence of the Communist Party is unique.

Viet Nam’s legal powers are centralised in one supreme body, and then delegated to lower bodies located in Viet Nam’s
63 municipalities and provinces. The National Assembly is the only body with the power to amend the Constitution
and pass laws but the implementation and administration of such laws is decentralised.

It is said that 2018 will be a key milestone to ensure the completion of the 2016–2020 Socio-Economic Development
Plan. One of the Government’s priorities is to enhance the legal system, which will result in a more business-friendly
regulatory environment. Consequently, in 2018, numerous laws are coming into effect, largely focusing on sectors such
as banking, technology transfer and trade. Among them, the most significant ones are the Law on Support for Small
and Medium - Sized Enterprises, the Law on Amending and Supplementing a Number of Articles of the Law on Credit
Institutions, and the Law on Foreign Trade Management.

2018 is going to be a busy year for lawmakers in Viet Nam as the National Assembly plans to pass six draft laws and
a dozen draft resolutions, as well as debate nine draft laws. Amongst those, the draft Law on Special Administrative-
Economic Zones has received a large amount of public attention since it is expected to greatly contribute to the GDP of
the country.

In late 2017, the Government issued a new decree on transformation of SOEs into joint-stock companies. This new
Decree aims to remove obstacles to SOE equitisation and boost the restructuring of State corporations.

22 | Doing Business in Viet Nam
Law on Investment and                   property rights; and rights in plant      imports of goods and services from
Enterprises                             varieties. Currently, Viet Nam and        abroad, repayment of loans and the
                                        the EU are finalising preparations        payment of interest accrued thereon,
In late 2014, the National Assembly     to sign the EU-Viet Nam Free Trade        transfers of profits and dividends and
passed the Law on Investment (LOI)      Agreement (EVFTA). Viet Nam’s             for transfer of technology/ royalties.
and Law on Enterprises (LOE), both      participation in both the EVFTA and
of which came into effect on 1 July     the CPTPP Agreement requires              Foreign investors and foreigners
2015. A series of implementing          Viet Nam to meet high standards of        working in Viet Nam are permitted
regulations were issued in late 2015    IPR protection.                           to transfer abroad profits and
(including Decree 78/2015/ND-                                                     income earned in Viet Nam, and any
CP guiding enterprise registration,     Viet Nam has taken steps to improve       remaining invested capital upon the
Decree 96/ND-CP guiding the             its IP framework to the same level        liquidation of an investment project.
implementation of the LOE, and          as other South East Asian countries,
Decree 118/2015/ND-CP guiding the       according to the sixth annual US          Business Etiquette and
implementation of the LOI). These       Chamber International IP Index,           Culture
laws govern the establishment and       which analyses the IP climate in
operation of companies in Viet Nam.     50 world economies, released in           Many Vietnamese are more
                                        February 2018 by the US Chamber of        comfortable using their native
In 2016, a number of regulations        Commerce Global Innovation Policy         language rather than English.
were issued or came into effect in      Center (GIPC).                            However, many English speakers can
relation to the Law on Investment,                                                be found in Viet Nam, especially in
including Decree 135/2015/ND-CP         Foreign Exchange Controls                 the larger cities.
on overseas indirect investment,
Circular 16/2015/TT-BKHDT               The Vietnamese dong is not freely         Presenting business cards is an
on templates for investment             convertible and cannot be remitted        important ritual in the Vietnamese
registration, Decree 50/2016/           overseas. The Government has been         business world. Cards are exchanged
ND-CP on administrative fines for        implementing measures to gradually        at the beginning of a meeting using
violation of planning and investment    reduce the country’s dependency on        both hands. Translating written
regulations, and Circular 83/2016/      the US dollar.                            materials into Vietnamese shows
TT-BTC on investment incentives.                                                  respect for Vietnamese colleagues
Decree 50/2016/ND-CP above is also      All buying, selling, lending and          and business partners.
applied for enterprises.                transfer of foreign currency must
                                        be made through banks and other           Face to face business meetings
Intellectual Property (“IP”)            financial institutions authorised         are important in Viet Nam and an
                                        by the SBV. As a general rule, all        appropriate level of respect must
As a member of the WTO,                 monetary transactions in Viet Nam         be shown according to rank and
Viet Nam must conform with the          must be undertaken in Vietnamese          seniority.
WTO’s requirements on Intellectual      dong. Payments, contracts,
Property. The Law on Intellectual       quotations, etc. within Viet Nam
Property Rights (“IPR”) was passed      must generally be in Vietnamese
in 2005, which was amended and          dong.
supplemented in 2009. According to
the Law on IPR, three major IP rights   The outflow of foreign currency by
are protected in Viet Nam: copyright    transfer is only authorised for certain
and related rights; industrial          transactions such as payments for

                                                                                                          PwC Vietnam | 23
2
Types of
Business
Entities
A foreign entity may establish
its presence in Viet Nam as a
limited-liability company with
one or more members, a joint-
stock company, a partnership, a
branch, a business cooperation
contract or a representative
office.

Foreign investors may also
buy an interest in an existing
domestic enterprise, subject
in some cases to ownership
limitations which vary
depending on the industry
sector.

The choice of investment vehicle
will depend on factors such
as the number of investors,
industry, size of the project and
whether there is any intention
to list.

24 | Doing Business in Viet Nam
“   The government has
    introduced a range
    of open policies and
                            Forms of business
                            Limited-liability Company                          stock company is divided into shares
                                                                               and each founding shareholder
    clearer guidance        A limited-liability company is a legal             holds shares corresponding to the
                                                                               amount of capital the shareholder
    supporting investors to entity established by its “members”
                            (i.e. owners) through capital                      has contributed to the company.
    establish a commercial contributions to the company. The                   A joint-stock company is required
                            capital contribution of each member
    presence in Viet Nam.   is treated as equity (charter capital).            to have at least three shareholders.
                            The members of a limited-liability                 There is no limit on the maximum
    Licensing procedures    company are liable for the financial               number of shareholders in such
    have become less        obligations of the company to
                            the extent of their charter capital
                                                                               companies.

    cumbersome during       contributions.                                     The governance of a joint-stock
                                                                               company includes the general
    the recent years.”      The management structure of a                      meeting of shareholders, the board
                                     limited-liability company would           of management, the chairman of
    Phan Thi Thuy Duong              normally consist of the “members’         the board of management, the
                                     council”, the chairman of the             general director and a board of
                                     members’ council, the general             supervisors (not compulsory if the
    Director
                                     director and a controller (or board       joint stock company has less than
    PwC Legal Vietnam
                                     of supervisors where the limited-         11 shareholders, or if a corporate
                                     liability company has more than 11        shareholder holds less than 50%
                                     members).                                 of the shares of the joint-stock
                                                                               company).
                                     A limited-liability company
                                     established by foreign investors may      A joint-stock company may either be
                                     take the form of either:                  100% foreign-owned or may take the
                                     • A 100% foreign-owned                    form of a joint venture between both
                                         enterprise (where all members         foreign and domestic investors.
                                         are foreign investors); or
                                     • A foreign-invested joint-venture        Partnership
                                         enterprise between foreign
                                         investors and at least one            A partnership is a very rare form of
                                         domestic investor.                    investment. It may be established
                                                                               between two individual general
                                                                               partners. The general partner has
                                     Joint-stock Company                       unlimited liability for the operations
                                                                               of the partnership.
                                     A joint-stock company is a limited
                                     liability legal entity established
                                     through a subscription for shares in      Branch
                                     the company.                              This is not a common form of foreign
                                                                               direct investment and is only permitted
                                     Under Vietnamese law, this is the         in a few sectors (e.g. banking and
                                     only type of company that can issue       foreign law firms). A branch is not an
                                     shares. The charter capital of a joint-   independent legal entity.

                                                                                                        PwC Vietnam | 25
Branches of foreign companies are       Business Cooperation
                                  different from representative offices   Contract (“BCC”)
                                  in that a branch is permitted to
                                  conduct commercial activities in        A BCC is a cooperation agreement
                                  Viet Nam.                               between foreign investors and at
                                                                          least one Vietnamese partner in
                                  Representative Office                   order to carry out specific business
                                                                          activities.
                                  Foreign companies with business
                                  relations or investment projects
                                                                          This form of investment does not
                                  in Viet Nam may apply to open
                                                                          constitute the creation of a new
                                  representative offices in Viet Nam.
                                                                          legal entity. The investors in a BCC
                                                                          generally share the revenues and/
                                  A representative office may not
                                                                          or products arising from a BCC and
                                  conduct commercial or revenue-
                                                                          have unlimited liability for the debts
                                  generating activities (i.e. the
                                                                          of the BCC.
                                  execution of contracts, receipt of
                                  income, sale or purchase of goods, or
                                  provision of services).                 Public and Private
                                                                          Partnership Contract
                                  A representative office is only         (“PPP”)
                                  permitted to:
                                  • Act as a liaison office;
                                                                          A Public and Private Partnership
                                  • Conduct market research; and
                                                                          (“PPP”) contract is an investment
                                  • Promote its head office’s
                                                                          form carried out based on a
                                      business and investment
                                                                          contract between the government
                                      opportunities.
                                                                          authorities and project companies
                                                                          for infrastructure projects and public
                                  This is a very common form of
                                                                          services.
                                  registered legal presence in
                                  Viet Nam, particularly for those
                                                                          PPP contracts include Build-
                                  in the first stage of a market entry
                                                                          Operate-Transfer, Build-Transfer,
                                  strategy.

26 | Doing Business in Viet Nam
Build-Transfer-Operate, Build-Own-          technology zone, information
Operate, Build-Transfer-Lease, Build-       technology application;
Lease-Transfer and Operate-Manage       •   Infrastructure for agriculture
contracts.                                  and rural development, services
                                            for enhancing the correlation
Both public and private investors           of agricultural production with
are encouraged to participate in PPP        processing and consumption of
contracts. The rights and obligations       agricultural products; and
of the foreign investor will be         •   Other sectors according to the
regulated by the signed PPP contracts       Prime Minister’s decisions.
and the applicable regulations
governing such contracts. Investment
sectors include:

•   Transportation infrastructure
    and relevant services;
•   Lighting systems, clean water
    supply systems, water drainage      Liquidation and Bankruptcy
    systems, water/waste collection
    and treatment systems, social/
    resettlement houses, cemeteries;
•   Power plants and power                     A company can only be voluntarily liquidated if it is solvent
    transmission lines;                        and all creditors can be paid. The process generally takes 12
•   Infrastructure for healthcare,             months or more and requires a final tax audit.
    educational and training,
    cultural, sport and relevant               The Bankruptcy Law came into effect on 1 January 2015
    services, offices for government           setting out, inter alia, which parties can instigate bankruptcy
    authorities;                               proceeding, procedures for the appointment of a liquidator,
•   Infrastructure for commerce,               organisation of creditors meetings and priority of creditor
    science and technology,                    payments.
    hydrometeorology, economic
    zone, industrial zone, high- tech
    zone, centralised information

                                                                                                          PwC Vietnam | 27
Setting Up a Business
    Limited-liability company/Joint-stock company/Partnership

                    The provincial
                    department of
                    planning and               OR
                                                          The provincial industrial
                                                          zone management                             15
                                                                                                      days
                                                                                                                                     Investment
                                                          authority or economic zone                                                 Registration
                    investment                            management authority
                                                                                                     In practice, it usually takes
                                                                                                                                      Certificate
                                                       (For projects located inside                  longer.
    (For projects located outside of
    industrial zones, export processing                industrial zones, export processing
    zones, high-tech zones and                         zones, high-tech zones and
    economic zones)                                    economic zones)

    Step 2
                    The provincial
                                                    3
                                                    days                             Enterprise
                    department of                                                   Registration
                    planning and                                                     Certificate
                    investment                    In practice, it usually takes
                                                  longer.

     Note: Investment in “conditional” sector activities is subject to more cumbersome licensing procedures. These may require
     an approval in principle, or the licence application to be reviewed also at the central government ministry level in Hanoi.

    Representative office

                    The provincial
                    department of              OR
                                                          The provincial industrial
                                                          zone management
                                                                                                     7
                                                                                                     working days
                    industry and trade                    authority or economic zone                                                 Representative
                                                          management authority                                                           Office
    (For representative office located                 (For representative office located            In practice, it usually takes      Licence
                                                                                                     longer.
    outside of industrial zones, export                inside industrial zones, export
    processing zones, high-tech zones                  processing zones, high-tech zones
    and economic zones)                                and economic zones)

     Public-Private Partnership (PPP) project (such as BOT/BTO/BT project)

              Investment
              agreement is signed
              with an “Authorised State
              Authority” (“ASA”)

                   The Ministry of
                   Planning and                                                     Investment                      Project contract is signed with
                   Investment                                                       Registration                    the relevant state body and the
                                                                                     Certificate                    project company is set up in the form
                                                                                                                    of a limited liability company or a
                                                                                                                    joint stock company.

28 | Doing Business in Viet Nam
3
Trade

        PwC Vietnam | 29
Trade Statistics

“   Viet Nam’s                        Export & Import Growth (2012 - 2017)

    participation in new-
    generation FTAs like
    the CPTPP and EVFTA                                                                                               21.2%

    will help diversify                        18.2%
                                                                                                                              21%

    trade opportunities                                    15.4% 15.4%
    and create a more                                                    13.7%
                                                                                   12.1%
    transparent business                                                                          12%

    environment and                                                                        7.9%
                                                                                                         9%
                                                   6.6%
    prepare for Industry                                                                                       5.2%

    4.0 ”
    Grant Dennis                                2012            2013          2014            2015        2016          2017

    General Director
    PricewaterhouseCoopers            Key traders (2017)
    Consulting Vietnam

                                      ASEAN                                   28
                                                                       21.5

                                       Korea                                                  46.7
                                                                                                                              Export
                                                                14.8
                                                                                                                              Import
                                                                16.6
                                      Japan
                                                                16.8

                                       China                                                            58.2
                                                                                    35.5

                                                            12.1
                                         EU                                          38.3

                                                          9.2
                                         US
                                                                                           41.6

                                                                                       40.2
                                      Others                                              45.5

                                                  Unit: US$ Billion

    30 | Doing Business in Viet Nam
10 Key export commodities

         Phones and their parts                   Textiles
         $45.3 billion                            $26 billion

         Computers, electrical products           Footwear
         $26 billion                              $14.7 billion

         Machinery, instruments, accessories      Seafood
         $12.8 billion                            $8.3 billion

         Wood and wooden products                 Vehicles and their parts
         $7.7 billion                             $7 billion

         Cameras, video cameras and their parts   Textile fiber, fabric & yarn
         $3.8 billion                             $3.6 billion

10 Key import commodities

         Machinery, instruments, accessories      Computers, electrical products
         $37.7 billion                            $33.7 billion

         Phones and their parts                   Textiles, fabrics
         $16.3 billion                            $11.4 billion

         Iron, steel                              Plastic materials
         $9 billion                               $7.3 billion

         Petroleum oil, refined                   Other base metals
         $7 billion                               $5.4 billion

         Textile, leather and                     Plastic products
         footwear materials                       $5.4 billion
         $5.4 billion

Source: GSO, Foreign Investment Agency and
Custom Department

                                                                                   PwC Vietnam | 31
Free Trade Agreements

Viet Nam has entered into, or               being progressed as the CPTPP            The ASEAN-Hong Kong FTA was
completed, the negotiation of a             (Comprehensive and Progressive           signed in late 2017 and will come
number of Free Trade Agreements             Agreement for Trans-Pacific              into force in the first quarter of 2019.
(FTAs), including both collective           Partnership), Viet Nam continues         The EU - Viet Nam FTA is expected
FTAs, as a member of ASEAN, and             to be increasingly integrated into       to be the next major milestone for
bilateral FTAs, (such as FTAs with          the global economy, through these        Viet Nam from a trade perspective.
the EU, Japan, Chile and Eurasian           bilateral and collaborative FTAs. The    It should be effective for Viet Nam
Economic Union).                            CPTPP maintains most of the terms        by 2018; and this FTA is expected to
                                            of the TPP, allowing the remaining       liberalise 90% of imports from both
While the original TPP agreement            TPP11 to continue implementation         sides, in a 10 to 15 year time frame.
has been put on hold, instead               of the FTA.

FTAs

10
Signed and
                                     AFTA                             3
                                                                      End of
                                                                                                       EU - Viet Nam

effective                                                             negotiation/
                                     ASEAN - China
                                                                      Signed but                       ASEAN - Hong Kong
                                                                      not yet
                                                                      effective
                                                                                                       TPP - CPTPP
                                     ASEAN - Korea

                                     ASEAN - India

                                     ASEAN - Japan
                                                                      3
                                                                      Under
                                                                                                       Regional Comprehensive
                                                                                                       Economic Partnership
                                                                                                       (RCEP)

                                                                      Negotiation
                                     ASEAN - Australia/ New Zealand                                    Viet Nam - EFTA

                                     Viet Nam - Chile                                                  Viet Nam - Israel

                                     Viet Nam - Japan

                                     Viet Nam - Korea

                                     Viet Nam - Eurasian
                                     Economic Union

32 | Doing Business in Viet Nam
Viet Nam has continued on the path       •   EU - Viet Nam FTA (EVFTA) –          reforms, continued domestic
of economic liberalisation since its         This agreement is in the final       investment and improvements in
admission to the WTO in 2007.                stages of negotiation and is due     manufacturing and labour standards
                                             to be signed this year. The EU       are necessary to fully realise
While conceding some delays, key             is Viet Nam’s second largest         benefits from these and other trade
FTAs have been signed and have               export market and this FTA will      agreements.
progressed. The three main FTAs              expand opportunities; notably,
are:                                         for increased investment and
                                             trade between Viet Nam and EU
•   Comprehensive and                        member states. Viet Nam has
    Progressive Trans-Pacific                already become a key market
    Partnership (CPTPP), – the               in ASEAN for exports to the EU
    original TPP has been amended,
    due to the withdrawal of the
    USA. However, the remaining
                                             and this trend will continue,
                                             pending the approval and
                                             implementation of this FTA.
                                                                                  11
    11 TPP signatories have                                                       TPP signatories have
    continued to move towards full       •   ASEAN-Hong Kong FTA                  continued to move towards
    implementation of the original           (AHKFTA)– Signed in late 2017,       full implementation of the
    TPP terms, with some minor               this key FTA will come into force    original TPP terms.
    modifications. This agreement            in early 2019. Key benefits of the
    still includes circa 14% of global       AHKFTA include: increased ease
    GDP and should continue to               of investment, ownership and
    foster the attractiveness of             financial transactions between                                      Malaysia
    Viet Nam as an investment                Hong Kong and ASEAN.
                                                                                       Canada
    destination and bode well for            Viet Nam is Hong Kong’s largest
    future economic growth. As               export market within ASEAN                                          Peru
    one of the least-developed               and tariff reductions, reduced
    economies of the CPTPP group,            trade restrictions and investment         Mexico
    Viet Nam still needs to continue         protection should increase
    to make large strides, in order to       the depth of this economic                                          Japan
    reach the standards outlined in          relationship. Additionally,
                                                                                     Australia
    the agreement, but also stands to        onward investment through
    achieve some of the largest gains        Hong Kong to ASEAN will be                                          Singapore
    among the group. Viet Nam’s              streamlined.
    agricultural and manufacturing                                                       New     Singapore

                                                                                      Zealand
    sectors are in an especially         These three key FTAs as well as
                                                                                                                 Brunei
    good position to take advantage      other recent liberalisation actions                                     Darussalam
    of more open trading terms.          (FTAs, SOE equitisation, market
                                                                                         Chile
    In addition to gains in trade,       liberalisation policies) show that
    the FTA should also stimulate        the Viet Nam Government is                                              Viet Nam
    advancements in regulatory           committed to expanding market
    processes, transparency, labour      access and opportunities in trade
    standards, IP, market access,        and investment to foreign investors.
    disputes and other issues.           However, additional regulatory

                                                                                                               PwC Vietnam | 33
4
Taxation

34 | Doing Business in Viet Nam
“   The local tax system
    is undergoing
    modernisation to
    become more in line
    with international
    practices, and reduce
    tax compliance costs
    and time. ”
    Nguyen Thanh Trung

    Partner                 General Overview
    PwC Vietnam

                            Most business activities and investments in Viet Nam will be affected by the
                            following taxes:
                            • Corporate income tax;
                            • Various withholding taxes;
                            • Capital assignment profits tax;
                            • Value added tax;
                            • Import duties;
                            • Personal income tax of Vietnamese and expatriate employees;
                            • Social insurance, unemployment insurance and health insurance
                              contributions.

                            There are various other taxes that may affect certain specific activities,
                            including:
                            • Special sales tax;
                            • Natural resources tax;
                            • Property taxes;
                            • Export duties;
                            • Environment protection tax.

                            All these taxes are imposed at the national level. There are no local, state or
                            provincial taxes.

                                                                                                   PwC Vietnam | 35
Tax Rates

             Corporate Income Tax
             (“CIT”)                                    20%

             Capital Assignment
             Profits Tax (“CAPT”)
                                                        20%

                                                                                      5%
             Value added tax                         10%                                                        0%
             (“VAT”)
                                                     Standard                 for essential goods and      for exported goods/
                                                                              services                     services

             Withholding taxes
                                                                           5%                 5%
             (Excluding VAT)
             Levied on certain pay-
                                                     10%                                                         1%
             ments to foreign parties,
             rates depend on the                     Royalties             General              Interest         Goods
             nature of activities, e.g.                                    services

             Personal Income Tax          •   PIT rates depend on residency status and nature of income.
             (“PIT”)                      •   Tax residents are taxed on their world-wide taxable income, tax non-residents on
                                              their Viet Nam sourced income only.
                                          •   Employment income: for residents, progressive tax rates from 5-35% apply, for
                                              non-residents, 20% applies on the Viet Nam sourced income.
                                          •   Other income: tax rates vary from 0.1% to 10%.

             Social insurance             Employer
             (“SI”), Health                                                           3%
             insurance (“HI”)
             and Unemployment                        17.5%                                                      1%
             insurance (“UI”)
                                                        SI                              HI                        UI

                                          Employee

                                                      8%                              1.5%                      1%
                                                        SI                              HI                        UI

36 | Doing Business in Viet Nam
Tax incentives                                based on        applicable for

                                                               Inter alia education, health care, sport/
   Preferential CIT rates are 10% and
                                                               culture, high technology (including
   20% for 15 years and 10 years,                              in agricultural sector), environmental
   respectively. From 1 January 2016,           Sector         protection, scientific research,
   enterprises previously entitled to                          infrastructural development, clean energy
   the preferential CIT rate of 20% will                       and computer software manufacturing.
   enjoy a rate of 17% instead. When the
   preferential rate expires, the CIT rate
   reverts to the standard rate. Certain
                                                               Inter alia qualifying economic and high-
   socialised sectors (e.g. education,                         tech zones, certain industrial zones, and
   health) enjoy a 10% rate for the entire      Location
                                                               difficult socio-economic areas.
   life of the project.

   Tax holidays with a complete
                                                               Large manufacturing projects meeting
   exemption from CIT for a certain                            requirements regarding investment capital,
   period generally beginning after the          Scale         minimum revenue, minimum headcount.
   enterprise first makes profits, followed
   by a period where tax is charged at
   50% of the applicable rate:                                 Manufacturing of industrial products
   •   4 years of tax exemption and                            prioritised for development if they meet
       9 subsequent years of 50%                               one of the following conditions:
       reduction,                                              •   The products support the high
   •   4 years of tax exemption and            Industrial          technology sector; or
       5 subsequent years of 50%                products       •   The products support the garment,
       reduction,                             manufacturing        textile and footwear, IT, automobiles
                                                                   assembly or mechanics sector and
   •   2 years of tax exemption and
                                                                   are not produced domestically as
       4 subsequent years of 50%                                   at 1 January 2015, or if produced
       reduction.                                                  domestically, they do not meet
                                                                   the quality standards of the EU or
                                                                   equivalent.

                                                                                         PwC Vietnam | 37
Types of Tax                                              Page

                                  Corporate Income Tax (“CIT”)                                39

                                  Transfer Pricing                                            42

                                  Foreign Contractor Withholding Tax (“FCT”)                  43

                                  Capital Assignment Profits Tax (“CAPT”)                     47

                                  Value Added Tax (“VAT”)                                     47

                                  Special Sales Tax (“SST”)                                   52

                                  Natural Resources Tax (“NRT”)                               54

                                  Property Tax                                                54

                                  Environment Protection Tax                                  54

                                  Import and Export Duties                                    55

                                  Personal Income Tax (“PIT”)                                 57

                                  Social, Health and Unemployment Insurance Contributions     61

                                  Other Taxes                                                 61

38 | Doing Business in Viet Nam
Tax year end                            sport/culture, high technology,
                                        environmental protection,
                                                                                •   Projects with total capital of
                                                                                    VND12,000 billion or more,
                                        scientific research and technology          disbursed within 5 years of
The tax year end in Viet Nam is         development, infrastructural                being licensed and using
generally 31 December, but financial    development, processing of                  technologies appraised in
year end 31 March, 30 June, 30          agricultural and aquatic products,          accordance with relevant laws.
September are also possible.            software production and renewable
                                        energy.                                 The two common preferential rates
Corporate Income                        New investment or expansion
                                                                                of 10% and 20% are available for
                                                                                15 years and 10 years respectively,
Tax (“CIT”)                             projects engaged in manufacturing
                                        industrial products prioritised for
                                                                                starting from the commencement
                                                                                of generating revenue from
                                        development are entitled to CIT         the incentivised activities. The
Tax Rates                               incentives if they meet one of the      duration of application of the
                                        following conditions:                   preferential tax rate can be
Enterprises (generally companies)       • the products support the high         extended in certain cases. From 1
are subject to the tax rates imposed         technology sector; or              January 2016, enterprises having
under the CIT Law. The standard CIT     • the products support the              projects previously entitled to the
rate is 20%. Companies operating in          garment, textile, footwear,        preferential CIT rate of 20% now
the oil and gas industry are subject         electronic spare parts,            enjoy a rate of 17% instead. When
to CIT rates ranging from 32% to             automobile assembly, or            the preferential rate expires, the
50% (depending on the location               mechanical sectors and were        CIT rate reverts to the standard rate.
and specific project conditions).            not produced domestically as at
Companies engaging in prospecting,           1 January 2015, or if produced     The preferential rate of 15% will
exploration and exploitation of              domestically, they meet the        apply for the entire project life in
mineral resources (e.g. silver, gold,        quality standards of the EU or     certain cases. Certain socialised
gemstones) are subject to CIT rates          equivalent.                        sectors (e.g. education, health)
of 40% or 50%, depending on the
                                                                                enjoy the 10% rate for the entire life
project’s location.                     Locations which are encouraged          of the project.
                                        include qualifying economic and
Tax Incentives                          high- tech zones, certain industrial    Taxpayers may be eligible for
                                        zones and difficult socio-economic      tax holidays and reductions.
Tax incentives are granted to           areas.                                  The holidays take the form of an
new investment projects based                                                   exemption from CIT for a certain
on regulated encouraged sectors,        Large manufacturing projects            period beginning immediately after
encouraged locations and the size       (excluding those related to the         the enterprise first makes profits
of the project. Business expansion      manufacture of products subject to      from the incentivised activities,
projects (including expansion           special sales tax or those exploiting   followed by a period where tax is
projects licensed or implemented        mineral resources):                     charged at 50% of the applicable
during the period from 2009 to 2013     • Projects with total capital of        rate. However, where the enterprise
which were not entitled to any CIT          VND6,000 billion or more,           has not derived taxable profits
incentives previously) which meet           disbursed within 3 years of being   within 3 years of the commencement
certain conditions are also entitled        licensed, if they meet either of    of generating revenue from the
to CIT incentives. New investment           the following criteria:             incentivised activities, the tax
projects and business expansion              1. minimum revenue of              holiday/tax reduction will start from
projects do not include projects                 VND10,000 billion/annum        the fourth year of operation. Criteria
established as a result of certain               by the 4th year of operation   for eligibility for these holidays and
acquisitions or reorganisations.                 at the latest; or              reductions are set out in the CIT
                                             2. head count of more than         regulations.
Sectors which are encouraged                     3,000 by the 4th year of
include education, health care,                  operation at the latest.

                                                                                                         PwC Vietnam | 39
Additional tax reductions may be           non-deductible. Examples of non-         •   Certain interest expenses
available for companies engaging           deductible expenses include:                 exceeding the cap of 20% of
in manufacturing, construction                                                          EBITDA;
and transportation activities which        •   Depreciation of fixed assets         •   Provisions for stock devaluation,
employ many female staffs or employ            which is not in accordance with          bad debts, financial investment
ethnic minorities.                             the prevailing regulations;              losses, product warranties or
                                           •   Employee remuneration                    construction work which are not
From 1 January 2018, certain                   expenses which are not actually          made in accordance with the
incentives, including a lower CIT rate         paid, or are not stated in a             prevailing regulations;
are granted to small and medium                labour contract, collective labour   •   Unrealised foreign exchange
enterprises (“SMEs”) (various criteria         agreement or the company                 losses due to the year-end
apply in order to be considered as an          policies;                                revaluation of foreign currency
SME).                                      •   Staff welfare (including certain         items other than account
                                               benefits provided to family              payables;
Tax incentives which are available             members of staff) exceeding          •   Donations except certain
for investment in encouraged sectors           a cap of one month’s average             donations for education, health
do not apply to other income (except           salary. Non-compulsory                   care, natural disaster or building
for income which directly relates to           medical and accident insurance           charitable homes for the poor;
the incentivised activities such as            is considered a form of staff        •   Administrative penalties, fines,
disposal of scrap), which is broadly           welfare;                                 late payment interest;
defined.                                   •   Contributions to voluntary           •   Certain expenses directly related
                                               pension funds exceeding VND 1            to the issuance, purchase or sale
Calculation of Taxable Profits                 million per month per person;            of shares;
                                           •   Reserves for research and            •   Creditable input value added
Taxable profit is calculated as the            development not made in                  tax, corporate income tax and
difference between total revenue,              accordance with the prevailing           personal income tax.
whether domestic or foreign sourced,           regulations;                         •   Service fees paid to related
and deductible expenses, plus other        •   Provisions for severance                 parties that do not meet certain
assessable income.                             allowance and payments of                conditions.
                                               severance allowance in excess of
Taxpayers are required to prepare an           the prescribed amount per the        For certain businesses such as
annual CIT return which includes a             Labour Code;                         insurance companies, securities
section for making adjustments to          •   Overhead expenses allocated          trading and lotteries, the Ministry of
accounting profit to arrive at taxable         to a permanent establishment         Finance provides specific guidance on
profit.                                        (“PE”) in Viet Nam by the foreign    deductible expenses for CIT purposes.
                                               company’s head office exceeding
                                               the amount under a prescribed        Business entities in Viet Nam are
                                               revenue-based allocation             allowed to set up a tax deductible
Non-deductible Expenses                        formula;                             research and development fund to
                                           •   Interest on loans corresponding      which they can appropriate up to
Expenses are tax deductible if they            to the portion of charter capital    10% of annual profits before tax.
relate to the generation of revenue,           not yet contributed;                 Various conditions apply.
are properly supported by suitable         •   Interest on loans from non-
documentation (including bank                  economic and non-credit
transfer vouchers where the invoice                                                 Losses
                                               organisations exceeding 1.5
value is VND20 million or above) and           times the interest rate set by the
are not specifically identified as being                                            Taxpayers may carry forward tax
                                               State Bank of Viet Nam;              losses fully and consecutively for a

40 | Doing Business in Viet Nam
maximum of five years.                     The standard tax year is the calendar
Losses arising from incentivised           year. Companies are required to
activities can be offset against profits   notify the tax authorities in cases
from non-incentivised activities, and      where they use a tax year (i.e. fiscal
vice versa. Losses from the transfer       year) other than the calendar year.
of real estate and the transfer of
investment projects can be offset          Profit Remittance
against profits from other business
activities. Carry-back of losses is not    Foreign investors are permitted to
permitted. There is no provision for       remit their profits annually at the
any form of consolidated filing or         end of the financial year or upon
group loss relief.                         termination of the investment in         the annual CIT return
                                           Viet Nam. Foreign investors are not      must be filed and
Administration                             permitted to remit profits if the        submitted not later than

                                                                                    90
                                           investee company has accumulated
CIT taxpayers are required to              losses.
make quarterly provisional CIT                                                                  days
payments based on estimates. If the        The foreign investors or the investee    from the fiscal year end
provisional quarterly CIT payments         company are required to notify the
account for less than 80% of the           tax authorities of the plan to remit
final CIT liability, any shortfall in      profits at least 7 working days prior
excess of 20% is subject to late           to the scheduled remittance.
payment interest (currently as high
as 11% per annum), applying from
the deadline for payment of the
Quarter 4 CIT liability.

Final CIT returns are filed annually.
The annual CIT return must be filed
and submitted not later than 90
days from the fiscal year end. The
outstanding tax payable must be
paid at the same time.

Where a taxpayer has a dependent
accounting unit (e.g. branch) in a
different province, a single CIT return
is required. However, manufacturing
companies are required to allocate
tax payments to the various
provincial tax authorities in the
locations where they have dependent
manufacturing establishments. The
basis for allocation is the proportion
of expenditure incurred by each
manufacturing establishment over
the total expenditure of the company.

                                                                                                               PwC Vietnam | 41
Transfer Pricing                        Related Party Definition                i.e. comparable uncontrolled price,
                                                                               resale price, cost plus, profit split and
(“TP”)                                  The ownership threshold required
                                        to be a “related party” under Decree
                                                                               comparable profits methods.

Decree 20/2017/ND-CP (“Decree           20 is 25%, higher than the previous    TP Documentation
20”) dated 24 February 2017 came        20% under Circular 66. In addition,
into effect on 1 May 2017. Guiding      Decree 20 removes from the related     Compliance requirements include
Circular 41/2017/TT-BTC dated 28        party definition of Circular 66 two    an annual declaration of related
April 2017 also came into effect on 1   entities having transactions between   party transactions and transfer
May 2017.                               them accounting for more than          pricing methodologies used, and a
                                        50% of their sales or purchases.       taxpayer confirmation of the arm’s
Decree 20 is based loosely on the       Viet Nam’s transfer pricing rules      length value of their transactions (or
previous Circular 66/2010/TT-BTC,       also apply to domestic related party   otherwise the making of voluntary
but extends the interpretation of       transactions.                          adjustments), which is required to
existing provisions and introduces                                             be filed together with the annual CIT
additional concepts and principles      TP Methodologies                       return.
from the Transfer Pricing Guidelines
of the Organisation for Economic        The acceptable methodologies for       Decree 20 requires that the TP
Cooperation and Development             determining arm’s length pricing       method applied must ensure that
(OECD) and BEPS Action Plan.            are analogous to those espoused        there is no loss of tax revenue to
                                        by OECD in the Transfer Pricing        the state budget, which could imply
                                        Guidelines for Multinational           that no downward adjustments are
                                        Enterprises and Tax Administrations,   allowed. Decree 20 also introduced
                                                                               a new TP declaration form which
                                                                               requires disclosure of more detailed
                                                                               information, including segmentation
                                                                               of profit and loss by related party and
                                                                               third party transactions.

                                                                               Decree 20 gives the tax authorities
                                                                               the power to use internal databases
                                                                               for TP assessment purposes in
                                                                               cases where a taxpayer is deemed
                                                                               noncompliant with the requirements
                                                                               of the Decree.

                                                                               Taxpayers engaged in related party
                                                                               transactions solely with domestic
                                                                               related parties could be exempt
                                                                               from the requirements to disclose
                                                                               information on such transactions
                                                                               in the new TP declaration form,
                                                                               where both parties have the same
                                                                               tax rate and neither party enjoys tax
                                                                               incentives.

42 | Doing Business in Viet Nam
Companies which have related party
transactions must also prepare and
                                          in November 2015, local Transfer
                                          Pricing Audit departments were
                                                                                     Foreign
maintain contemporaneous transfer
pricing documentation. Decree
                                          also established in the Hanoi, Binh
                                          Duong, Dong Nai, and Ho Chi Minh
                                                                                     Contractor Tax
20 introduces a three-tiered TP
documentation approach to collect
                                          City tax authorities. In July 2016, the
                                          GDT announced the establishment
                                                                                     (“FCT”)
more tax-related information on           of a BEPS Working Group which              Scope of Application
multinational companies’ business         is responsible for preparing action
operations, specifically, master file,    plans to implement the OECD                Foreign contractor tax is levied on
a local file and country-by-country       BEPS Initiatives and overseeing the        payments to foreign organisations
reporting. The three-tiered TP            implementation process.                    and individuals undertaking
documentation has to be prepared                                                     businesses or earning income
before the submission date of the         As of early 2018, the GDT is in            sourced from Viet Nam. FCT is
annual tax return, which gives            negotiations with the competent            not a separate tax and is merely a
taxpayers just 90 days (from the          authorities (“CA”) of various              collection mechanism for VAT and
fiscal year end date) to complete the     overseas tax jurisdictions to conclude     CIT, or PIT for income of foreign
year’s TP documentation.                  the first Bilateral APAs for several       individuals. Payments subject to FCT
                                          taxpayers.                                 include interest, royalties, service
A taxpayer is exempt from preparing                                                  fees, leases, insurance, transportation,
TP documentation (but not all other       Substance over form                        transfers of securities, and goods
aspects of the Decree) if one of the      principle                                  supplied within Viet Nam or
following conditions is met:                                                         associated with services rendered in
• has revenue below VND 50                Decree 20 emphasises the need              Viet Nam.
     billion and total value of related   for closer scrutiny of all related
     party transactions below VND 30      party transactions to ensure that          The application of FCT is subject to
     billion in a tax period; or          value creation is actually generated       the application of a relevant Double
• concludes APA and submits               from intra-group transactions. The         Tax Agreement.
     annual APA report(s); or             substance over form principle is
• has revenue below VND 200               especially relevant to CIT deductibility   Certain distribution arrangements
     billion, performs simple             and transfer pricing documentation         where foreign entities are directly
     functions and achieves at            must support for such related party        or indirectly involved in the
     least the following ratios           transactions.                              distribution of goods or provision of
     of earnings before interest                                                     services in Viet Nam are subject to
     and tax to revenue on the                                                       FCT - e.g. where the foreign entity
     following business: distribution     Interest cap
                                                                                     retains ownership of the goods,
     (5%), manufacturing (10%),                                                      bears distribution, advertising or
     processing (15%).                    Decree 20 introduces a 20% EBITDA
                                          cap on the tax deductibility of total      marketing costs, is responsible for
                                          interest expenses. Whilst Decree 20 is     the quality of goods or services,
2015 to 2017 saw significant                                                         making pricing decisions, or
developments in transfer pricing          the guiding tax regulation applicable
                                          to associated enterprises, it appears      authorises/hires Vietnamese entities
initiated by the tax authorities.                                                    to carry out part of the distribution
In July 2015, a Transfer Pricing          that the 20% EBITDA cap could be
                                          applied to both related party and third    of goods/provision of services in Viet
Audit Department was established                                                     Nam.
within the General Department of          party loans.
Taxation (“GDT”). Soon afterwards,

                                                                                                               PwC Vietnam | 43
You can also read